The government's environmental bank is likely to be scaled back to begin life as a fund, jeopardising billions of pounds of badly-needed loans to green technology.

The green investment bank (GIB) was devised by the chancellor, George Osborne, when in opposition as crucial to the development of green energy projects such as clean coal plants and offshore windfarms in the UK.

Now the cabinet minister in charge of seeing the plan come to fruition – a devoted ambassador for the idea of a bank – has floated the possibility of a staggered introduction.

This would see it initially set up as a more limited fund unable to raise finance by issuing "green bonds" to back green projects.

Chris Huhne, the energy and climate change secretary, appears to concede the Treasury's concern that the liabilities taken on by the GIB would be added to the government's budget book.

He suggests instead the new institution could become a bank able to raise finance over time, as the UK's deficit is reduced.

In an interview with the Guardian, Huhne said the government remained committed to setting up a bank and an initial fund was only one option. But the prospect of a delay on implementing this key green policy will dismay environmentalists.

"Obviously, if we were to turn around and have the GIB borrowing vast amounts of money tomorrow I can understand that managers of the national debt would be a little alarmed by that," Huhne said.

"I am absolutely at one with the Treasury on the need to make sure our fiscal credibility is completely re-established. The key issue is … having established our fiscal credibility, what then happens? There are phasing issues, there are transition issues. Let there be no doubt that the first overwhelming priority of the government has to be to get the deficit down."

The auditor Ernst & Young has said that without a bank, only about a fifth of the £450bn investment it estimates is required over the next 15 years for the UK to meet its targets on reducing carbon emissions would be made.

On Thursday Huhne will announce other measures which he says will amount to the biggest change to the electricity market since privatisation in the 1980s.

Despite its apparent rethink on the GIB, the government is expected to announce plans to channel private sector investment into renewables in other ways.

Ministers hope to make cleaner ways of generating electricity more competitive, along with measures including a tax on carbon emissions that would make coal and gas plants more expensive to operate.

The Guardian has also learned that Huhne's plan will breach a Conservative pre-election pledge on cleaning up coal plants.

In a speech to environmentalists in October last year, David Cameron repeated his party's pledge to introduce rules requiring new power stations to be as clean as a modern gas plant.

This would have required energy companies to fit experimental equipment which captures and stores carbon emissions (CCS) to about two-thirds of their new coal plants.

But the policies unveiled on Thursday are expected to recommend that CCS is fitted to only a third of coal plants. Huhne declined to comment.